The Consumer Financial Protection Bureau (CFPB) is becoming a light switch regulator, operating in two modes, either on or off. For last month’s cover story, I could argue that Director Richard Cordray’s behavior toward consumers was decidedly on, while his behavior to the trade press was decidedly off.
But I don’t need to use that as an example, and I shouldn’t. As posited in the HousingWire newsroom later, in an attempt to decipher Cordray’s snap decision to change a long-arranged interview, someone said, “He could have had a conference call, he could have had anything; we can’t speculate as to why.”
True we can’t speculate, and we don’t have to. We can let his public and private behavior speak for itself. Congressional battles with the CFPB are always heated and centered around the most controversial subjects.
The latest testimony in January brings the total times a CFPB representative sat in front of Congress to 46 occasions in less than three years. This, of course, is across a wide variety of topics. And maybe it’s beginning to wear down the resolve of the regulator. Or at least dissolve the decorum of professionalism.
Director Cordray, during his more recent testimony in front of the House Financial Services Committee, seemed to have had enough.
At one point, the normally cool and confident Cordray grew upset about a round of questioning over the alleged impact CFPB rules are having on manufactured housing. Members of the Congressional panel suggested that the director and his “one-size-fits-all” approach to lending rules and his comments are condescending to the manufactured housing community.
Granted, these questions were asked in a derogatory manner, but it’s important to not overreact to issues when the American Dream is on the line.
Unfortunately, Cordray took it personally. He fired back, telling the House panel, “These are some of the most offensive questions I have ever heard coming from this Committee.”
HousingWire then ran an article on the incident, citing Cordray as “telling off Congress.”
In the end, the incident caused the important news from the hearing to become buried. Cordray gave the panelists a better idea of who fits within the qualified mortgage credit box and shared a willingness to be more flexible if the market shows a need for change. That is huge for our industry.
“There are three main boxes,” the director noted at one point. Any loan that has a debt-to-income ratio of 43% or less is a QM loan, he said, along with any mortgage that qualifies to be acquired by the government-sponsored enterprises.
The third credit box is for small-to-smaller creditors — covering community banks — giving them a pass if they sell to the GSEs or keep the loans in portfolio.
Cordray reminded Congress that the CFPB continues to monitor QM and “whether we are drawing all the lines in exactly the right places.”
He admitted that if issues come up that are relevant, the Bureau is open to considering more changes.
Still, I wondered if the harsh tone from the director signaled an internal shift in approach from the CFPB to the mortgage market. It’s a tough spot, keeping a lid on regulation, while on the other hand the Federal Housing Finance Administration may look to open the mortgage taps with changes at Fannie Mae and Freddie Mac.
It’s difficult to read Washington’s crystal ball. I wrote a blog post suggesting that a buffer between Cordray and his largely Republican detractors could work to alleviate some of this pressure.
In that post, I mention fawning press coverage of the CFPB. Admittedly, after the above hearing, several media outlets changed their tune. Criticism grew on the amount of money being spent on refurbishing the CFPB headquarters (not a big deal) and on the creation of a consumer database with the FHFA, widely covered in the trade press for more than a year (a very big deal).
I also mentioned two things that were incorrect. The first is that its advisory council is paid. Dead wrong. The second is that the CFPB is taxpayer funded. Technically wrong. The CFPB sent a correction, irked that my blog wasn’t fact checked, and then went on to prove the first and most important point of that very post:
The conversation is not constructive, it’s combative.
The CFPB sent a series of off-the-record emails. My question on whether or not Cordray’s behavior at the hearing was indicative of the culture at the CFPB was indirectly and affirmatively answered. The emails, each one more shocking in tone than the last, contained both professional and personal attacks.
How could such behavior be considered acceptable? Why throw away an opportunity with a leading trade publication to work together to make things right? If the blog, casual in intention, stoked such a response, why were no solutions being offered?
A quick search of the CFPB website — under a part of its strategic plan titled: WE AIM TO EMBODY THE FOLLOWING VALUES IN EVERYTHING WE DO — shows that what is actually happening is the opposite of what should be happening:
“Fostering leadership and collaboration at all levels is at the core of our success. We believe in investing in the growth of our colleagues and in creating an organization that is accountable to the American people.” Obviously, the press is the public watchdog for the American people, whether writing for the consumer or writing for the trade.
These recent issues are not isolated to my experiences. The level and intensity of recent engagement seems to have amplified unnecessarily.
Let’s take a look at what is happening in the market right now. The mortgage finance market has implemented a raft of CFPB changes, with many being ahead of the curve on this. The reality is that in the years after the housing crisis, but before QM, lenders issued home loans with an unprecedented level of responsibility. Where’s the credit for that?
Still, there are nuances that could help the purchase mortgage market. Gabe Medrano, regional sales executive at NexBank, said QM went into effect Jan. 10 and it only took a little while for the effect to be felt. In the time between, the consumer’s costs to get a mortgage dipped considerably. At first, we thought it was due to a flight-to-safety among investors.
The stock market was dipping and agency bonds were rallying. Medrano found another component at play.
“One reason is the rally, but I think the larger part is the QM rule,” Medrano said. “The scrutiny of fees is a huge component. No one has been sued over QM yet and no one wants to be the first, so I think everyone is being very conservative.”
A total of 320 CFPB examiners begin onsite supervision work in 2014. Some of the mortgage processes can be satisfied orally, which underpins how important it is to understand the culture at the regulator. These are the people you will have face-to-face discussions with; we should get to know them.
Law firm Ballard Spahr also prints a blog titled the CFPB Monitor that does a great job of interpreting the regulator’s actions for the trade. In a recent post, attorney Richard Andreano states that the CFPB’s Winter 2013 Supervisory Report stated that non-public supervisory actions resulted in at least $2.6 million in remediation to consumers, in areas such as mortgage origination and servicing. So this is an argument supporting the constant vigilance necessary in our space. But Andreano digs a little deeper.
“Given the diligence with which industry has been working to comply with the requirements of the new rules, we were disappointed that the CFPB did not acknowledge the progress it undoubtedly saw when conducting its supervisory work,” Andreano wrote. “We hope the CFPB’s next supervisory highlights report will include such an acknowledgement, and reflect Director Cordray’s repeated statements that the CFPB would not expect immediate perfect compliance and instead would be looking at whether companies were making a good-faith effort to comply with the new servicing and other mortgage rules.”
Given his recent behavior favoring consumers and not the trade, is this still a solid expectation? It seems the CFPB will do what it wants, when it determines a certain appropriate action.
And it will react to the industry’s response either on or off. So maybe it doesn’t need a Congressional buffer after all. What is needed here is a middle ground at the CFPB, a dimmer if you will. This would make everyone, including the CFPB, lighten up a bit.
